A few weeks back, I kicked off the Intelligent Investor Series as part of my weekly commentaries. Th...
10 Principles for Successful Trading
11/17/2015 6:00 am EST
In this article, the staff at GFMResearch.com maps out the ten important principles that all traders should adhere to on a daily basis, regardless of what market is being traded.
Many traders trade markets like gambling. But trading is a serious business like any other business. Trading in financial markets, especially in leveraged markets, demands lot of discipline, skill, and strategizing.
For the best trading results, our philosophy revolves around the following trading principles.
1. Trading Is Not Gambling
Some traders think that trading is gambling. They throw away their money (which we call sacred money) in the market. Trading is a serious business, which needs meticulous planning. Discovering your own individual optimized trading size is part of this planning.
2. Plan Your Trading Plan and Stick to the Plan
Many traders jump into the waters without understanding the depth of the market or without planning. And, more often, it is observed that even if a trader does planning, he/she modifies the trading plan during the trading session. We advice traders to plan before the market opens, and more importantly, stick to the plan. We strongly recommend understanding your trading style before you put a large % of your trading capital at stake.
3. Learn to Lose
As the saying goes, "Lose a battle(s), win a war." It is observed that many traders end up holding a trading position, especially if it is running way out-of-the-money beyond his plan and ends up marrying a losing trade. This leads to a situation wherein you try to justify bad trades. Remember, "Today's big loss was yesterday's small loss."
4. Define Trading Objectives
As with any other business, the objective of trading should be very clear. Leave alone the purpose of trading itself, many traders do not define the objective of a trade. Investors should define their reason for trading, like some may want to buy a new home or a car, or pay off debt, or parking their funds, etc., whatever the reason may be. Similarly, you need to define objectives for each and every trade. Unless your purpose is to kill time or throw away your money, we recommend trading with clear objectives.
5. Always Trade with Stop Loss
While trading, if a stop loss gets triggered in anticipated direction, a trader tends to curse the stop loss. Stop loss in itself is not a wrong strategy, where you put a stop loss matters the most. If a stop loss gets triggered often, rethink why your stop loss is getting triggered. Remember, "Stop loss is an inevitable evil."
6. Financial Markets Are Eternal
The markets offer endless and plentiful possibilities. Generally, a trader, especially after a loss, tends to trade immediately to recover the loss and ends up in compounding the loss. Or if he misses a trade, he jumps into a next trade without planning. Missed opportunities exist only in your mind. Prices keep changing and generate other opportunities. The goal of trading is to make a net profit after a sequence of trades. Markets are always there whether you remain or not.
7. Be Careful of Over Leverage and Overtrading
Over leverage makes you ignore risk management. Over leverage has to be taken care of, especially in already leveraged instruments like futures or in forex trading. Over trading is another aspect of bad trading practice. Give your mind thinking time to develop a strategy. Over trading results in tiredness, both to you and your capital.
8. Discount Market Rumors from Market Facts
Discount market rumors like interest rates policy, GDP, stocks data, and many more. Prices digest much of the future news.
9. Take Care of Your Trading Costs
While trading, costs like brokerage, taxes, and other statutory charges are actual, fixed costs. It is observed that many traders end up paying about 20%-or more-of their profits or losses towards trading costs. Shop around for the best rates for your size and quantity of trading. Ask brokers about special offers or how to qualify for discounts on commissions, etc.
10. Trade with a Clear Mind
Finally, last but not least, trade only when your mind is in a position to think clearly. Sometimes, even something like a small fight with your spouse, or brother, or sister, or your kid, or your friend, or maybe some stranger on your way to office, or for any reason, if you are disturbed, don't trade. Trade with a clear mind.
By the Staff at GFMResearch.com
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